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Wednesday, April 27, 2016

Related Party Transactions Appear to Be Slippery

Titan Machinery (NASDAQ: TITN $12.93) recently filed annual audited financial statements for FY2016 10K which ended on January 31,2016. Titan today filed their Definitive 14 proxy statement with the Securities and Exchange Commission for its upcoming June Shareholder meeting.
(4 of 8 directors that sat on Board from last May 2015 have now resigned according to latest 10K, including the founder of company who also quit as the president without any explanation, No new president has been named since he quit as president in June 2015.)

TITN stock has sky rocketed UP 62% from $8 on February 11th to $12.93 in 10 weeks. A Penny Stock Brokerage Firm out of Minnesota , FELTL,has said after the company reported over a (-$30 Million) Loss for the 2nd consecutive FY that the stock could "easily" go to $40 as reported by Dow Jones on the morning of March 18th when shares had one of top volume days of the year. IN November FELTL estimated that TITAN would have net income of $20 Million in FY2017, Titan said on CC that they would NOT be profitable in FY17.

Normally a Definitive proxy filing would be a run of the mill cookie cutter disclosure naming directors and small proposals up for a vote that are usually insignificant, but not when it involves Titan Machinery!

Equities Research first raised a red flag on the issuer based on poor fundamentals, specifically a pattern of Cashless Earnings with significant amounts of negative operational cash flow. A further examination learned that the company was no more than a roll up story consisting of mom and pop retailers that the company was financing through the issuance of debt and more debt. But it wasn't until the company filed a PROXY Statement in April of 2013 that it was discovered this company was being financially raped by management's related party transactions.

Today we won't discuss the DEF 14 filed in April 2013 that the Securities and Exchange Commission Division of Corporate Finance spent 8 months exchanging comment letters on with the company.

Today we won't discuss the DEF 14 filed in 2015 when the Company asked for shareholders to give their proxy vote to the President of the company only to have the President suddenly resign from the company (3 days after the filing) without updating the DEF14. (Company has still not disclosed why the founder resigned from the board, stepped down as president and left the company. The company has not had a president since June 2015. Severance Agreement has been disclosed.)

In 2012 the Minnesota Department of Revenue Charged the owner of C.I. Construction with 21 felonytax crimes.Since the charge, C.I. Construction has generated revenue of $13 million directly from Titan Machinery. (prior to the charge we are to believe that C.I. Construction did not do any business with Titan)

MAY 2013 Titan Machinery for the First time Included C.I. Construction as a Related Party
Its peculiar that C.I. Construction was not disclosed as Related Party prior to 2013 considering Titan Machinery grew from 2 stores to 100 stores over that time span.
Here is A Video from YouTube that CI CONSTRUCTION advertises for the work they did for Titan Machinery in FY2012. But there was NEVER ANY DISCLOSURE OF THIS RELATED PARTY DEAL IN SEC FILING FY2012.
Fact is C I Construction was a related party with Titan prior to FY2013 but there was no disclosure.
http://articles.aberdeennews.com/2011-10-21/farmforum/30308885_1_titan-machinery-case-ih-storage-building

Today we will shed light on the RELATED PARTY TRANSACTION that the company discloses with a construction company which is also a reseller of the company's products.
The company discloses in their filings that the contractor, C.I. Construction, owner is a brother in law of two brothers that founded TITAN MACHINERY and sit on the board. (one brother is the president who recently resigned and the other who also is the investment banker to Titan still sits on the board.)

C I Construction is disclosed in SEC filings as a RELATED PARTY because the Owner, Rob Thompson, is the (3) brother in law of the two founders (directors) and the Treasurer of the company.

C.I.CONSTRUCTION (RELATED PARTY) Received the following Payouts:FY2013: $6.7 MillionFY2014: $3.9 MillionFY2015: $1.9 MillionFY2016: $0.5 Million total 4 years: $13 MillionIn the past year C.I. advertises on their website they are building 2 of the biggest projects in the history of Titan and its peculiar that they ONLY earned $500K in FY2016? hmmm

Ted Christensen is the treasurer of Titan Machinery but is also listed as an officer of C.I.Construction.TITAN Disclosure (Ted Christianson is our Treasurer and Vice President, Finance. He joined Titan in 2003 and is responsible in his senior financial role to secure access to capital both domestically and internationally as well as managing overall financial risk.)

Ted Christensen is also listed as an officer of Dealer Sites, LLC which is also disclosed as a RELATED PARTY of TITAN MACHINERY. DEALER SITES is an entity that many of the Management of TITAN have an EQUITY INTEREST (Christensen family members and the Chairman of TITAN, David Meyer.) Dealer Sites has recently disclosed it has increased contracts with DEALER SITES from under $50 Million to over $100 Million.

IT GETS MORE BIZZARE. IS C.I.Construction and Dealer Sites one in the same? According to this TAX document , YES. And this GOVERNMENT Document too. C.I CONSTRUCTION shares the Same Address of DEALER SITES on certain other Documents with Ted Christensen as the contact person.

Another RELATED PARTY DISCLOSURE in Titan Machinery Disclosure is C.I. FARM POWER refers to a company owned by company's founder , Peter Christensen who recently Suddenly stepped down as a Board Member and resigned from company.
THERE is no disclosure whether C.I.FARM POWER is related to C.I. Construction. I am assuming that C.I. in the Farm Power company and the C.I. Construction are both created from Christensen Incorporated.
In 2011 when Peter Christensen disclosed in his sale of 200,000 shares of stock @ $27.80 the position that he sold was shares of C.I. Farm Power.

According to this Article: C.I. stands for Christenson Incorporated and is owned by ROB THOMPSON and PETER CHRISTENSON. But there is NO DISCLOSURE in SEC Filings pertaining to Thompson owning CI Farm Power nor Christenson owning CI CONSTRUCTION.

"Earl Christianson became the sole owner of Christianson’s Inc.
and, Earl’s son Peter and son-in-law Rob Thompson are assuming
leadership positions in what has become a three-generation family business"

2016 Construction Management Services Performed by C.I. Construction, LLCC.I. Construction, LLC ("CI"), performs construction management services for certain of the Company's new store construction projects, shop additions, and remodel projects. CI is owned by Rob Thompson, who is the brother-in-law of Peter Christianson (our former President and former member of our Board of Directors) and of Tony Christianson (a member of our Board of Directors). CI performs construction management services including developing designs/specifications and drawings, preparing bid packages, advising on the selection of suppliers and contractors, and overseeing the construction process. CI is also an authorized reseller of certain steel buildings that the Company frequently incorporates into its construction projects.CI receives a fee equal to 4.5% of the construction costs, excluding expenditures for certain fixtures and fixed assets that the Company originates. CI is also reimbursed for the labor costs of CI's site supervisors and on-site staff, and utilities, equipment rental, travel, and other direct costs incurred by CI in performing the services. CI also receives payment as a reseller of the steel buildings used in certain of our construction projects. We are not obligated to retain CI on an ongoing basis, and this decision will be made for each project based on the best interests of the Company. During fiscal 2016, CI received an aggregate amount of $474,717 in direct or indirect payments from the Company for the performance of construction-related services and the purchase of steel buildings, as well as reimbursement for other construction-related costs.

C.I. Construction, LLC, ("CI") performs construction management services for certain of the Company's new store construction projects, shop additions, and remodel projects. CI is owned by Rob Thompson, who is the brother-in-law of Tony Christianson (a member of our Board of Directors) and Peter Christianson (a member of our Board of Directors and our President). CI performs construction management services including developing designs/specifications and drawings, preparing bid pack ages, advising on the selection of suppliers and contractors, and overseeing the construction process. CI is also an authorized reseller of certain steel buildings that the Company frequently incorporates into its construction projects.

CI receives a fee equal to 4.5% of the construction costs, excluding expenditures for certain fixtures and fixed assets that the Company originates. CI is also reimbursed for the labor costs of CI's site supervisors and on-site staff, and utilities, equipment rental, travel, and other direct costs incurred by CI in performing the services. CI also receives payment as a reseller of the steel buildings used in certain of our construction projects. We are not obligated to retain CI on an ongoing basis, and this decision is made for each project based on the best interests of the Company. At times, we have utilized a competitive bidding process for construction management services.

During fiscal 2014, CI received an aggregate amount of $3.9 million in direct or indirect payments from the Company for the performance of construction-related services and the purchase of steel buildings, as well as reimbursement for other construction-related costs. We do not believe the terms of any of the transactions and agreements described above are any less favorable to us than could be obtained in an arm's length transaction with an unrelated party.